In the property market in Singapore, the Option to Purchase (OTP) is often confusing for many people. An OTP agreement is legally binding and crucial to securing your dream property. However, a mistake could lead to hefty financial losses. Here are six common OTP blunders to avoid and their solutions so you do not fall prey to problems.
1. Understand the OTP Fully.
Signing an OTP is not a casual commitment. Once you sign it, you are legally bound to it. If you back out, you will lose your option fee, which can be a significant amount. Make sure you’re fully committed before signing, and seek professional advice if unsure.
Remember:
- The OTP is legally binding.
- Be 100% sure you can commit to the purchase.
- Consult with a property agent or lawyer if you’re unsure.
2. Adhere to Deadlines.
The OTP gives you a short amount of time to make your decision. (Typically 14 days for resale) Missing the deadline means losing your option fee. Always mark the expiry date and act promptly. If more time is required, request an extension in writing before the deadline.
Remember:
- Add the key dates to your calendar so you won’t miss out!
- Don’t wait until the last minute to exercise.
- If you need an extension, you can ask for it in writing, but note that the seller is not obligated to comply.
3. Plan your finances
Don’t sign an OTP without securing the funds. If your loan is rejected, you may lose your OTP option fee. Get a bank’s written confirmation and consider all costs like stamp duties and lawyer fees.
Costs you need to factor in:
- Buyer Stamp Duty (BSD) will be applicable. Normally between 3% and 6%
- Additional Buyer Stamp Duty (ABSD) may apply depending on your residency status and the number/type of properties you hold (if any).
- There will be Legal Fees to factor in, typically between $2,500 and $3,500
- Keep money aside for renovation and moving costs.
Banks evaluate key factors such as credit score, existing liabilities, income stability, and TDSR before loan approval. Failing to review these in advance may result in unexpected loan limitations or affordability issues during the purchase process.
Remember:
- Get an in-principle loan approval (IPA) before signing the OTP
- Bank loans are limited to 75% of the property value.
- Pay your credit card on time to avoid a negative credit standing.
4. Conduct Legal and Property Checks.
Before signing, check that the property is free from legal issues or defects. Get a lawyer for legal checks and inspect the property properly for any faults. Note that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made.
Remember:
- Identify a law firm to conduct legal checks on the property before signing the OTP.
- Inspect the property thoroughly – check for cracks, leaks, mould, etc.
- Ask for official documents for renovation approvals, maintenance payments, etc.
5. Review the OTP Clauses Carefully.
Not all OTPs are the same. Some may have clauses that disadvantage you. Carefully read the document, and negotiate any unfavourable clauses before signing. Engage a lawyer if needed.
Remember:
- Read and understand the entire OTP document before signing.
- Hire a lawyer or a property agent if you’re unsure.
- Take photos of fixtures, fittings, and movable items that the seller has agreed to include in the sale.
6. Document Everything.
Verbal agreements are not legally binding. Ensure all agreements are documented in the OTP. Team up with professionals so all terms are clear and enforceable.
Remember:
- Put everything in writing – if it’s not documented, it won’t count.
- Discuss and agree on terms before signing.
Conclusion
Avoid these common mistakes to save yourself from unnecessary stress and financial losses. Ready to make your property purchase a smooth experience?
Contact me to review your OTP and avoid costly property pitfalls before it’s too late!
